Thai Central Bank Warns Against ‘Illegal’ Use of Baht-Denominated Stablecoin

Thai Central Bank Warns Against ‘Illegal’ Use of Baht-Denominated Stablecoin

The Bank of Thailand (BOT) has issued a warning against the use of Thai baht-denominated stablecoins labeling them a threat to the stability of the national currency system.

In a press release on Wednesday, the central bank took specific aim against the baht stablecoin THT created on the Korean stablecoin platform Terra.

“[THT] could cause fragmentation to the Thai currency system should THT or other similar stablecoins come to replace, substitute or compete with Baht issued by the BOT,” the release reads.

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The central bank now deems any activity involving THT “illegal,” on the basis the creation, issuance and usage or circulation of any material or token for money violates Section 9 of the country’s Currency Act (1958).

Any person is able to issue a proposal on Terra’s algorithmically-governed platform in order to mint new cryptocurrency that is later voted on by stakers holding the platform’s native luna token.

Do Kwon, head of Terraform Labs told CoinDesk in a Twitter direct message that Terra does not initiate proposals nor does it ever vote on them. “I think it’s a very interesting development and quite amused we were able to catch the attention of a central bank,” said Kwon. “Great free public relations, right?”

Asked by a user on Twitter whether he believed the central bank could “hurt” the THT ecosystem within Terra, Kwon responded, “lol no,” on Thursday.

BOT said the general public needs to exercise caution and refrain from participating in any activity involving THT alleging users could be at risk of cyber theft and money laundering without the necessary legal protections.

Stablecoins linked to national currencies have been received with great trepidation by governments and regulators around the world.

Most notably, the announcement of the Diem (formerly Libra) Facebook-backed stablecoin caused a wave of pushback, with the U.S., France, Germany and other nations saying it posed a threat to financial stability and even fiscal sovereignty and should be heavily regulated, if allowed to launch at all. Diem has since been reduced in scope for a reported plan for launch this year.

In China, the central bank proposed a change of the banking law last October, pushing to outlaw any yuan-pegged stablecoin bar its own digital currency.

Bank of Thailand did not immediately respond to a request for comment by CoinDesk.

BoT warns against any use of THT stablecoin

BoT warns against any use of THT stablecoin

The Bank of Thailand is warning people to refrain from participating in any activities involving Thai Baht Digital (THT), as there are no legal assurances or protection with it and users could be at risk of cybertheft or money laundering.

Pruettipong Srimachand, the central bank’s assistant governor of the legal group, said any activities involving the new stablecoin THT that was created abroad on the Terra platform are considered illegal. The creation, issuance, usage or circulation of any material or token for money is a violation of Section 9 of the Currency Act 1958.

The central bank said recent developments have seen the private sector attempting to create cryptocurrencies using underlying assets or fiat currencies as an anchor to minimise price volatility. Such cryptocurrencies are known as stablecoins.

More recently, a new form of stablecoins using underlying algorithmic smart contracts was created to replicate the price and movement of various currencies. One unit of the stablecoin THT is denominated in and valued at one baht. Although THT is not used as a medium of exchange, it could cause fragmentation of the Thai currency system should THT or other stablecoins come to replace, substitute or compete with baht issued by the central bank, he said.

“Such usage would ultimately affect the general public’s confidence in the stability of the national currency system, which is the cornerstone of all economic activities,” said Mr Pruettipong.

In a separate development, the Bank of Thailand announced it plans to stop using Thai Baht Interest Rate Fixing (THBFIX), the existing reference rate which incorporates the London Interbank Offered Rate (LIBOR) for interest rate calculation, after June 30, 2023, in line with the upcoming plans to phase out the LIBOR.

The central bank is the THBFIX regulator and it uses the US dollar LIBOR format to calculate rates. The bank announced it will inform commercial banks of the terms of the THBFIX rate through existing channels until its usage comes to an end.

The Bank of Thailand plans to stop new TBHFIX-based financial calculations including loans, debentures and derivatives from July 1 of this year.

Bank of Thailand Abolishes the Use of THT Stablecoin

Thailand’s central bank has warned against the use of THT stable coin via a circular. Stablecoins currently have a market cap of over $53 billion.

The Bank of Thailand has warned against the use of THT stable coin via a circular. Stablecoins currently have a market cap of over $53 billion.

Stable coins provide a means to hold digital assets without worrying about their inherent volatility. They have amassed popularity recently, and many central banks are considering issuing them.

It released a circular on March 17, 2021, prohibiting the use of THT. The Bank of Thailand outlined that the Baht-backed coin “could cause fragmentation to the Thai system.” It is concerned that widespread adoption of THT would deplete confidence and reliance on Baht.

As a result, it has declared that THT use is illegal. It also issued a warning to the public members to desist from using THT or participating in any activity involving it.

Bank of Thailand’s CBDC In View

Central banks around the world are on edge in light of the current cryptocurrency frenzy. They want to retain the ability to issue and control money. As a result, many are preparing to launch their own digital currencies.

Thailand is one of Asia’s leading nations in the race for a fully adopted Central Bank Digital Currency (CBDC). It launched a trial for the digital Baht in 2019, which eight commercial banks participated in.

A noteworthy fact about the digital Baht is that it may not be publicly available. Financial institutions and markets are likely to be the exclusive users of Thailand’s CBDC.

On March 8, BoT issued a press release on the results of a CBDC test project which commenced in 2020. The project was aimed at analyzing the efficiency of digital currencies as a payment in the business sector. The BoT concluded that “DLT can increase payment efficiency for businesses by allowing users to set various conditions on the CBDC to enhance flexibility in handling business activities.”

China recently started the biggest phase of its digital currency trial in the city of Chengdu. It had already recorded over $160 million in transactions for the CBDC.